RBA Set to Cut Cash Rate Again: Insights and Borrower Behaviour
The Reserve Bank of Australia (RBA) is widely predicted to reduce the cash rate to 3.60% in its upcoming Tuesday meeting—marking the third interest rate cut this year. Despite this easing trend, major banks, including Commonwealth Bank (CBA), NAB, and ANZ, report that only a small fraction of borrowers (approximately one in ten) have opted to decrease their home loan repayments following the recent cuts in May.
Rachel Wastell, a personal finance expert at Mozo, advised that maintaining consistent repayments could strategically benefit borrowers by allowing them to pay off loans faster and save on interest, provided they are not facing immediate cash flow constraints. For those who do require some financial flexibility, she suggests using an offset account to mitigate interest costs while retaining access to funds.
Tess Sutherland, the General Manager of Home Buying at CBA, noted that the trend of minimal borrower response to rate cuts mirrors observations from previous reductions, with only a nominal percentage of clients adjusting their repayments. NAB echoed this sentiment, with over 90% of its borrowers choosing to keep their repayments unchanged, while ANZ similarly reported that approximately 10% adjusted their repayment amounts since earlier cuts.
Interestingly, Westpac stands out as the only one among the Big Four banks that automatically adjusts repayments for clients making the minimum payments. In contrast, borrowers with CBA, NAB, and ANZ must proactively contact their bank to alter their repayment plans.
CBA estimates that homeowners with a $500,000 mortgage may see savings of about $160 per month due to the interest rate reductions in February and May. Over the life of a 30-year mortgage, the potential cumulative savings could reach close to $200,000 if further cuts are implemented.
Analysing borrower demographics, Sutherland mentioned that those in their thirties and forties are more inclined to lower their repayments—likely due to the pressures of managing family expenses amidst rising household costs.
Market analysts expect the RBA to announce a 0.25% rate cut, with a strong consensus from economists forecasting the upcoming reduction. Observations indicate a greater than 90% probability of a cash rate adjustment at the July meeting.
According to Mozo’s calculations, a 0.25% cut would equate to roughly $76 monthly savings for owner-occupiers with a $500,000 mortgage, amounting to approximately $918 in annual savings. Projections indicate further rate cuts, with CBA and ANZ predicting two additional reductions over the coming months, while NAB anticipates three and Westpac forecasts four, contingent on the RBA’s tone following its meetings.
Recent inflation data points to a decline in headline inflation to 2.1% for May, down from 2.4% the month earlier, and a favourable drop in underlying inflation to 2.4%, the lowest observed in three and a half years. This moderating inflation landscape plays a crucial role in the RBA’s decision-making process regarding interest rates.
The prospect of continued interest rate cuts may offer financial relief for borrowers across various demographics, although many appear tentative in adjusting their repayment strategies in light of the easing monetary policy.
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